Certified Management Accountant Financial Planning 2 — Questions and Answers
Question 1: A company uses a rolling budget that is updated monthly by adding a new month as the current month ends. This approach is best described as:
- Zero-based budgeting
- Continuous (perpetual) budgeting (Correct answer)
- Flexible budgeting
- Incremental budgeting
Correct answer: Continuous (perpetual) budgeting
A continuous or perpetual budget always covers a fixed future horizon (e.g., 12 months) by adding a new period as each period closes.
Question 2: When preparing a cash budget, which of the following is NOT included as a cash outflow?
- Depreciation expense (Correct answer)
- Dividend payments
- Raw material purchases paid in cash
- Income tax payments
Correct answer: Depreciation expense
Depreciation is a non-cash expense and therefore does not appear as a cash outflow in the cash budget.
Question 3: A flexible budget variance is calculated as the difference between:
- Actual results and the static (master) budget
- Actual results and the flexible budget for actual volume (Correct answer)
- Flexible budget and the static budget
- Standard costs and actual costs ignoring volume
Correct answer: Actual results and the flexible budget for actual volume
The flexible budget variance isolates price/efficiency differences by comparing actual results to what the budget would have been at the actual level of activity.
Question 4: Which component of the master budget is typically prepared first?
- Production budget
- Sales budget (Correct answer)
- Cash budget
- Budgeted income statement
Correct answer: Sales budget
The sales budget is the starting point of the master budget because all other operating budgets depend on the projected sales volume.
Question 5: A company budgets sales of 10,000 units in Q1. Desired ending inventory is 20% of next quarter's budgeted sales of 12,000 units. Beginning inventory is 1,500 units. How many units should be produced in Q1?
- 10,900 units (Correct answer)
- 11,500 units
- 10,500 units
- 8,500 units
Correct answer: 10,900 units
Production = Sales + Desired Ending Inventory − Beginning Inventory = 10,000 + 2,400 − 1,500 = 10,900 units.
Question 6: In activity-based budgeting (ABB), cost estimation is primarily driven by:
- Historical cost trends adjusted for inflation
- The volume and mix of activities required to meet output targets (Correct answer)
- Senior management's discretionary spending limits
- Standard costing rates applied to budgeted direct labor hours
Correct answer: The volume and mix of activities required to meet output targets
ABB links budgeted costs to the activities needed to produce goods or services, using cost drivers to allocate overhead more accurately.
Question 7: Which of the following best describes a sales volume variance?
- Difference between actual selling price and budgeted selling price times actual units sold
- Difference between actual units sold and budgeted units sold times the budgeted contribution margin (Correct answer)
- Difference between actual variable costs and flexible-budget variable costs
- Difference between the master budget operating income and actual operating income
Correct answer: Difference between actual units sold and budgeted units sold times the budgeted contribution margin
The sales volume variance measures the impact of selling more or fewer units than planned, valued at the budgeted contribution margin per unit.
Certified Management Accountant Financial Planning 2
A company uses a rolling budget that is updated monthly by adding a new month as the current month ends.
This approach is best described as: